Buy-to-let news to Friday, October 20, 2017

In the news this week: August saw 4% year-on-year growth in buy-to-let lending;;

4% year-on-year growth in buy-to-let lending in August

August saw 4% year-on-year growth in buy-to-let lending, at a time when activity is traditionally slower.

The latest data from UK Finance showed that lending was at a similar level to July, but this still represented an improvement on the previous August.

Overall, there were 20,400 buy-to-let loans during the month, a similar figure to July.

However, the data indicated that the amount of money borrowed fell, with buy-to-let lending totalling £3.1 billion, 3% less than in July, but the same level as August 2016.

This was the fourth successive month that buy-to-let and remortgage lending increased.

The data also revealed that remortgaging was responsible for 68% of buy-to-let lending during August. Buy-to-let remortgaging was 5% less than in July, while borrowing for house purchase increased by 11 per cent.

Overall, however, UK Finance pointed out that borrowing for house purchase by buy-to-let landlords is at a lower level than before the introduction of the higher stamp duty rate in the spring of 2016.

Andrew Turner, chief executive at Commercial Trust Limited, said:

“These statistics are encouraging and underline that investors remain upbeat about investing in private rental property.

“Of course the figures also demonstrate people’s awareness of the present interest rate position, with many moving fast to take advantage of low rates, ahead of any possible increase in interest rates from the Bank of England.

“It will be interesting to see how the PRA rules around lending impact on borrowing statistics in the next couple of months.”

Parliamentary Committee to investigate council role in the UK private rental sector

In a bid to raise standards in the UK’s private rental sector (PRS), a British Parliamentary Committee has launched an inquiry into how local authorities deal with rogue landlords.

Back in 2013, a committee report highlighted five areas where it concluded the Government should seek to achieve change, these were; the simplification of PRS legislation, giving local authorities tools to raise standards, improved regulation of letting agents, an increase in housing supply and a cultural shift in favour of longer tenancies.

The inquiry that has been launched comes at a time when the private rental sector continues to grow, and demand continues to outstrip supply. Back in 2004, just one in 10 homes were privately rented and by 2016, that figure had grown to one in five; the under 40-year old’s demographic constituting 70% of tenants.

Such a rise in the rental market has of course created issues and the Communities and Local Government Committee are taking the opportunity to assess the role that councils can or should play in rooting-out bad practices.

Among the issues under consideration is that of intervention and whether existing landlord licensing schemes are having a positive effect on creating higher quality accommodation. Also in focus is the handling of disputes reported by tenants.

Committee chairman, Clive Betts, MP, commented:

“With a big rise in the number of people renting over the last decade, there are real concerns about the ability of local authorities to protect tenants by tackling bad landlords and practices.

“Our inquiry will examine how local authorities can carry out enforcement work to deal with rogue landlords as well as looking at approaches used by councils to provide private rented accommodation in their areas,” he added.

The closing date for submissions to the inquiry is Friday 24 November 2017 at midday.

Alarming statistics revealed on carbon monoxide testing

A campaign has revealed a disturbing statistic that nearly a third of tenants are living in rental properties that do not contain carbon monoxide alarms.

Even more concerning is that 80% of tenants are unaware that it is their responsibility to supply one in most casesand not the landlord's or letting agents’.

Almost two years after new legislation was introduced, the ‘Carbon Monoxide Be Alarmed!’ campaign has indicated that changes have not had the desired effect.

The present rules in England and Wales only require landlords or agents to provide a CO alarm in properties with a solid fuel appliance - either coal or wood burning stoves. By contrast, in Scotland, the responsibility falls with the landlord to ensure each rental property includes a CO alarm.

Whilst the greatest risk of carbon monoxide poisoning is present where properties have solid fuel appliances, any form of burnt fuel can pose a threat, including gas. For this reason Energy UK, behind the campaign, is applying pressure on the government to update the legislation so that all tenants are protected.

“The government [should] extend the legislation to protect all private renters including those with a gas appliance which is over 80 percent of homes,” commented Lawrence Slade, chief executive of Energy UK and CO Be Alarmed! spokesperson.

“Private landlords have a legal responsibility to provide a CO alarm if solid fuel burning appliances are installed, but landlords, tenants, and home-owners need to be aware that the risk of CO poisoning extents to all types of combustion – including natural gas. Although the risk is small, CO detectors are not expensive and require very little maintenance, which is why the NLA recommends landlords install an alarm in every property with solid fuel, oil, or gas installations. It is best practice and may save a life,” added Chris Norris, head of policy of the National Landlords Association.

Interest rate speculation rises along with inflation figures

Speculation of an imminent interest rates rise from the Bank of England has intensified, following news that inflation has hit 3%, its highest level in five years.

The Bank of England will reconvene to discuss interest rates in November, having already indicated that rising inflation was one of the biggest drivers for a likely rates rise.

In the meantime, September saw the Consumer Prices Index reach the 3% mark for the first time since 2012.

In recent weeks, Mark Carney, Governor of the Bank of England, has indicated that interest rates are likely to increase in the near future, albeit gradually. He noted in September, that rising inflation was one of the key factors to this likelihood.

Speaking to the Today programme in September, Carney said:

“What we have said is that if the economy continues on the track that it has been on - and all the indications are that it is - in the relatively near term you can expect that interest rates will increase.

“We are talking about just easing a bit off the accelerator to keep with the speed limit of the economy.

“So interest rate increases when they come - when and if they come - will be to a limited extent and in a gradual way.”

On the back of today’s news that inflation went up in September, Carney indicated that he believes this trend will continue over the next couple of months before gradually dropping back again, with the Bank’s aim to keep inflation at around the 2% mark.

In September, when the Bank’s Monetary Policy Committee (MPC) last met to discuss interest rates, they issued a statement indicating:

“Headline and core CPI inflation in August were slightly higher than anticipated.”

But, not all members of the MPC believe that an interest rates rise is inevitable, with the Bank of England’s newest deputy governor Sir Dave Ramsden stating:

“The majority of MPC members saw a case for removing some of the monetary stimulus in the coming months. I wasn’t in that majority.

“This was my first ever MPC member as a voter. I wasn’t in a position where I was part of that majority that thought - the way the degree of slack was diminishing, the way trade-off between slack and higher inflation was disappearing - was sufficient to give that signal.”

November will see the Bank's next quarterly Inflation Report as well as the next meeting of the MPC to discuss interest rates.

“Any increase in interest rates will almost inevitably lead to lenders raising mortgage interest rates for buy-to-let mortgage borrowers; some lenders are already increasing rates in the residential space.

“As a consequence, the next couple of weeks could see a rush of landlords looking to remortgage and take advantage of locked-in fixed rates, in anticipation of lenders reaction should interest rates rise.

“We have not yet seen evidence of buy-to-let lenders making this move, so there are still some fantastic fixed rates available. As a specialist broker in this niche we are well placed to match landlords to great fixed rate deals in even the most complex of scenarios.”

Welsh Government to review private rental sector

The Welsh government has issued an invitation for people to share opinions through a new consultation, as it looks to improve the quality of homes in the private rental sector in the Principality.

It is consulting on regulations that will seek to establish whether a property is ‘fit for human habitation’ (FFHH), a 100-year old concept that dates back to the Working Classes Act of 1885, which sought to improve working class homes. The new regulations will require landlords to take responsibility for the dwellings they rent.

Working within the framework of the Renting Homes (Wales) Act 2016, the Welsh government is looking to ensure landlords review 29 factors, which could result in a hazard to tenants, prior to and during their tenancy.

These will include a range of things such as the physical structure of the building (e.g. presence of lead, asbestos; risk of falling, building collapse), the safety of utilities (e.g. water, electricity, solid fuels), environmental factors (e.g. noise, hygiene, lighting, excesses in temperature) as well as overcrowding, risk of fires, entry by intruders and more. The full list can be found on page 6 and 7 of the Consultation Document under “Prescribed matters”.

“Quality homes are crucial to people’s well-being. We all know poor living conditions affect a person’s physical and mental health. Poor housing conditions such as overcrowding, damp, and cold have been linked to respiratory diseases as well as illnesses such as eczema and hypothermia. Housing should go beyond putting a roof over people’s heads.”

He added: “Everyone should be entitled to live in an environment that is as safe and healthy as possible. There is a need for us to address poor housing conditions, alongside our ambition to raise standards generally. The Renting Homes (Wales) Act 2016 replaces various, complex pieces of existing legislation with one clear legal framework. This includes the landlord’s duty within the act to ensure a dwelling is fit for human habitation.”

To access the Consultation Document and submit your feedback online, visit the “Renting Homes (Wales) Act 2016 – Fitness for human habitation” pages of the Welsh Government website. Large print, Braille or versions in alternative languages are available on request from the Renting Homes Team, rentinghomes@wales.gov.

Government introduces guidance on new EPC rules

With the deadline for meeting new Minimum Energy Efficiency Standards (MEES) Regulations fast approaching, the Department for Business Energy and Industrial Strategy has published new guidance for landlords on what the changes mean.

From April 2018, buy-to-let landlords will need to ensure that their rental properties have attained a minimum Energy Performance Certificate (EPC) rating of ‘E’, before they can accept any new tenants. By April 2020, all buy-to-let properties will need to meet these standards whether a tenancy is new or ongoing.

The guidance is broken down into four chapters that discuss topics such as; what steps a landlord should take to ensure compliance, ways to identify energy efficiency improvements in the home, ways to source no-cost funding for improvements, circumstances that may lead to exemption – and how to register, details of how the new rules will be enforced, the associated penalties for failure to comply, and the appeals system.

House price rises since 2012 could hit landlords hit with Mansion Tax

A property tax previously applied to only the very wealthy, could impact on company landlords at a much lower property valuation level, with many landlords unaware and potentially subject to thousands of pounds in fines if they don’t report their property affairs.

In 2012, the Government introduced the "annual tax on enveloped dwellings" (ATED), with the aim of putting off wealthy homebuyers from establishing companies in which to purchase property and avoid tax duties.

ATED targeted homes with a value over £2 million, but since April 2016, that figure has fallen to £500,000. The tax at present becomes applicable based on the 2012 valuation of a property, however, come April 2018 a new valuation will take place and – given increases in house prices - a much greater number of landlords may now become liable, particularly those in the south of England, where prices are traditionally higher.

Landlords are subject to ATED when the property in question is owned by a limited company and remains either empty or lived in by a “linked person”, such as a family member. An exemption applies when the property is being rented out privately, however, the landlord still has to file a return to HMRC to notify them of the situation, or they could incur fines.

Exacerbating the problem, the reduction and gradual phasing out of mortgage interest tax relief has seen a number of landlords switching property ownership into limited companies, with a view that the way they are taxed is potentially more favourable.

However, those limited companies could now be subject to ATED, depending on the property value and whether or not it is rented out, with many buy-to-let landlords unaware of this tax and the fact that irrespective of their exemption status, they must still notify HMRC or face a fine.

ATED sets annual charges, depending on the value of the property, as follows:

Those valued from £500,000 up to £1 million incur an annual charge of £3,500;

Properties valued between £1 million and £2 million incur an annual charge of £7,050;

Properties valued between £2 million and £5 million incur an annual charge of £23,550;

Properties valued between £5 million and £10 million incur an annual charge of £54,950;

Properties valued between £10 million and £20 million incur an annual charge of £110,100;

Properties valued at £20 million or more incur an annual charge of £220,350.

Whilst many limited company landlords will be renting out their properties and will prove exempt to charges, failure to tell HMRC could result in a fine, ranging from £100 for being a day late to £700 for being more than a year late.

Furthermore, the fines are charged on each property and roll up, so a company landlord owning several properties, could face a hefty bill if they forget to file.

Lucy Brennan, of Saffery Champness, the accountants, said:

“I have had problems with clients who aren’t aware of this. I had a landlord who called me to ask if he would be caught, I told him he was exempt but needed to fill in the return.

“Another whose parents had bought him a couple of properties for the future several years ago called me. He said I want to sell them, I said to him what have you done about ATED and he had no idea.

“My main concern with it is that people just don’t know. If you have decided you are going to invest in property in London that £500,000 mark could well catch you,” she added.

Got a burning buy-to-let question? Ask us!

Have you got a question about buy-to-let mortgages? Commercial Trust welcomes your questions and we’ll publish an answer each week.

Just email us at: ask@commercialtrust.co.uk

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.